Brussels: Europe and the Arabs

The Council of Member States today in Brussels approved its negotiating position on the revision of the EU Framework for Professional Pension Funds, also known as IORPs.

This framework regulates and supervises the activities of these entities. The revision aims to enhance transparency regarding costs and benefits for users, support risk management in this sector, and remove barriers, including cross-border ones, that currently hinder effective investment in the sector. A statement released in Brussels on Friday added: “Strengthening the IORP framework is one of the key objectives of both the Savings and Investment Union (SIU) Agenda and the EU roadmap ‘One Europe, One Market.’ It will also contribute to increasing retirement income for citizens by supporting professional pension provision, at a time when demographic and labor market changes in the EU are challenging the adequacy and sustainability of pensions.”

“Increasing private sector participation in our capital markets is essential to enhancing the overall competitiveness of the European Union. Strengthening professional pensions will help us meet this challenge. Today’s agreement is a step forward in removing persistent barriers to investment in this area, while contributing to more sustainable pension systems overall,” said Makis Keravnos, Finance Minister of the Republic of Cyprus, which currently holds the rotating presidency of the EU, according to the European statement.

Key Features of the Council’s Position

The Council retains several key elements of the Commission’s initial proposal, which aims to develop a framework for professional pensions, promote cross-border activities, and improve cooperation and information sharing between the competent authorities in Member States.

The Council also retains the “prudent person principle,” which ensures that investments are made in accordance with appropriate risk levels, the provisions relating to multi-sponsor professional pension funds and multi-fund operations, the proposed harmonized framework for domestic and cross-border collective transfers, and the basic rules of business conduct proposed by the Commission.

In keeping with its aim of achieving minimal coordination, and in response to strong calls from Member States to respect the specificities of national pension systems, the Council’s position retains broad national discretion. In this context, and to enhance flexibility, the Council has introduced several specific amendments to the initial proposal.

Regarding scope, the Council allows Member States to apply the directive to the institutional pension fund itself, or to the licensed entity that operates it, or both, provided that the assets are legally segregated. At the same time, licensed entities established in another Member State may not be prevented from operating institutional pension funds where national law permits. The text also sets out the rules for supervising these funds, as well as the responsibilities and cooperation between the competent authorities.

To support investment in the real economy, the minimum investment in equities and corporate bonds in regulated markets has been raised to 100%, while Member States retain the freedom to impose more restrictive limits. The Council has also introduced amendments to ensure proportionality in the areas of governance and supervision. Finally, in line with the overarching goal of reducing regulatory burdens and promoting simplification, the Council is streamlining administrative procedures and disclosures. In this context, provisions relating to the transfer of information to pension tracking systems, the assignment of specific tasks to EU-wide supervisory bodies, and the introduction of supervisory dialogues between IORPs and the authorities have been removed from the proposal.

Next steps: The negotiating position adopted today authorizes the Council to initiate discussions with the European Parliament on amendments to IORP Directive II, once Parliament has adopted its position on the revision.

IORPs play a crucial role in providing adequate and sustainable pensions, reducing pension gaps, and preventing old-age poverty. Furthermore, as long-term institutional investors with assets of nearly €3 trillion, IORPs are an important source of capital for the European economy, financing inclusive and sustainable growth. The IORP II directive aims to ensure the safety of professional pensions and to protect pension fund members and beneficiaries well.